Section 115V-I (commonly written as Section 115VI) of the Income-tax Act, 1961 explains which earnings of a tonnage tax company are treated as relevant shipping income. It separates qualifying shipping operations and prescribed incidental activities from other taxable business income. For the framework applying from tax year 2026-27, see Section 228 of the Income-tax Act, 2025.
Meaning of relevant shipping income
Under Section 115V-I(1), relevant shipping income consists of (i) profits from the core activities described in subsection (2), and (ii) profits from prescribed incidental activities described in subsection (5), subject to the statutory cap. It is a classification of income for the tonnage tax regime, not an exemption for every receipt earned by a shipping company.
Section 115VF connects this classification with the deemed tonnage income calculated under Section 115VG. Under the 2025 Act, the equivalent framework appears in Sections 226 to 228.
Core activities under Section 115V-I(2)
Core activities include operating qualifying ships and the specified shipping-related activities below, subject to applicable restrictions and notifications:
- Operation of qualifying ships: shipping activities using vessels that meet statutory eligibility requirements.
- Pooling arrangements: two or more persons provide services through a pool or operate ships and share earnings or operating profits on agreed terms.
- Contracts of affreightment: a service contract to transport a specified quantity of identified products at a specified rate between designated ports over an agreed period.
- Passenger services: specified on-board or on-shore passenger activities, including fares and food and beverages consumed on board.
- Container shipping activities: slot charters, space charters, joint charters, feeder services and container box leasing in container shipping.
The 2025 legislation and amendments effective from 1 April 2026 also address eligible inland vessels in relevant provisions. The precise classification must be checked against the current text of Section 228 and vessel eligibility rules.
Incidental activities and the 0.25% ceiling
Section 115V-I(5) covers activities incidental to core shipping activities as prescribed. An activity is not automatically eligible merely because it is related to a shipping business. The income from all prescribed incidental activities is aggregated and tested against 0.25% of turnover from core activities.
Excess taxable under ordinary provisions = incidental income minus the permitted amount, if positive.
Illustrative calculation
Suppose turnover from core activities is Rs. 40 crore and profits from eligible incidental activities are Rs. 15 lakh. The permitted threshold is Rs. 10 lakh (0.25% of Rs. 40 crore). The excess Rs. 5 lakh falls outside relevant shipping income and is taxable under the other applicable provisions. This illustration assumes the incidental activities are otherwise prescribed and eligible.
Non-qualifying ships and other business income
Under Section 115V-I(6), income attributable to operating a ship that is not a qualifying ship is computed under the ordinary income-tax provisions. The law also extends the relevant framework to inland vessels where applicable. Shipping companies should maintain records distinguishing qualifying operations, non-qualifying operations and non-shipping businesses.
Internal transfers at market value
Section 115V-I(7) addresses goods or services transferred between the tonnage tax business and another business of the same company. If the recorded consideration differs from market value, relevant shipping income is computed as though the transfer occurred at market value. Market value means the price the goods or services would ordinarily fetch in the open market. Where the computation presents exceptional difficulty, the Assessing Officer may use a reasonable basis as provided by law.
Transactions with connected persons
Under Section 115V-I(8), where close connections or business arrangements result in more than ordinary profits being attributed to the tonnage tax business, the Assessing Officer may determine the amount reasonably deemed to have been derived. Documentation of pricing and commercial arrangements is therefore important.
The explanation to the provision states that a loss in relevant shipping income is ignored for the purpose of computing tonnage income. This should not be confused with the general treatment of losses from businesses outside the tonnage tax regime.
Government notifications and parliamentary oversight
Subsection (3) authorises the Central Government, by notification in the Official Gazette, to exclude certain specified ship-related activities or prescribe limits for their inclusion. Subsection (4) sets out the parliamentary laying and modification process for notifications. The applicable notification position should be checked for the tax year concerned.
Income-tax Act, 2025: Section 228
For tax year 2026-27 onwards, Section 228 sets out relevant shipping income and exclusion from book profit, including core and incidental activities, the 0.25% restriction, non-qualifying operations and safeguards for transfers and connected-person arrangements. Section 226 explains the tonnage tax scheme and Section 227 addresses computation of tonnage income. Consult the amended statute for the exact operative language and any consequential changes.
Practical compliance checklist
- Verify that the company and each ship or inland vessel meet the tonnage tax eligibility conditions.
- Maintain separate ledgers for core shipping, prescribed incidental, non-qualifying and other business activities.
- Identify core turnover and calculate the 0.25% ceiling for incidental profits.
- Document pooling, affreightment, charter and related-party contracts.
- Support inter-business transfers with contemporaneous market-value evidence.
- Review applicable notifications, prescribed rules and the relevant tax-year legislation.
Frequently asked questions
Does all income of a shipping company qualify?
No. The income must fall within eligible core activities or prescribed incidental activities, and the incidental-income cap and other conditions apply.
Is the 0.25% limit calculated on shipping profit?
No. The statutory measure is turnover from core activities, not profit from those activities.
What happens to income from a non-qualifying ship?
It is computed under the ordinary provisions rather than being automatically included in the tonnage tax computation.
What is the corresponding provision in the Income-tax Act, 2025?
Section 228 deals with relevant shipping income and exclusion from book profit.
Official legislation and references
- Income Tax Department: Section 115V-I, Income-tax Act, 1961
- Income Tax Department: Income-tax Act, 2025, as amended by Finance Act, 2026 (PDF)
- Income Tax Department: Section 226, Tonnage Tax Scheme
Editorial note: This article explains the statutory framework for general information. Tax treatment depends on the applicable tax year, prescribed activities, notifications and facts of each case.